Altria Sees Second-Quarter Volume Drop

Touts movement in heat-not-burn, pouches during earnings call
Photograph: Shutterstock

RICHMOND, Va. — Focusing on its successes in its noncombustible segments, major tobacco manufacturer Altria Group Inc. nonetheless had to report a dip in cigarette volumes for the second quarter.

During its July 30 earnings call, the Richmond, Va.-based manufacturer of the iconic Marlboro cigarette brand reported a cigarette volume decline rate in the second quarter of 6%, up from 5% in the fourth quarter of 2018 and first quarter of 2019.

That did not stop its corporate leadership from touting success in two of its noncombustible segments. “In the second quarter, we made important progress further enhancing our business platform in noncombustible product offerings for adult tobacco consumers,” said Howard Willard, CEO of Altria. “In April, FDA authorized PMI’s IQOS product for U.S. commercialization in the heated tobacco category. And in June, we signed an agreement to acquire 80% ownership of the companies that will globally commercialize On, a leading product in the rapidly growing oral nicotine pouch category.”

Despite volume declines, Willard reported the company’s smokable products segment generated an adjusted operating income growth of 11% in the second quarter, primarily driven by higher pricing and cost reduction efforts.

For the first half of the year, the smokable segment delivered 5.7% adjusted operating income growth. The Marlboro brand showed “continued stability,” with retail share of 43.3%, which was unchanged vs. the quarter in the year prior. “Marlboro’s performance continues to be supported by its leading brand equity bolstered by investments in product expansions, packaging innovation, digital loyalty and trade programs,” Willard said.

In its discount segment, Altria’s L&M brand is performing “in line with expectations” and the company is pleased with its increased profitability over time. “We believe discount category dynamics continue to primarily reflect a churn between branded discount and deep-discount offerings,” Willard said. “The overall discount category grew … in the quarter to 24.2% and the discount category remains essentially in line with historical share.”

In terms of cigarette volumes in the first half of the year, the adjusted decline rate was an estimated 5.5%. Willard attributed much of the decline to increasing use of e-vapor products.

Several weeks after the earnings call, New York-based Philip Morris International announced it was in talks with Altria for a potential merger. The two companies were a single entity until 2008, when Altria spun PMI off on its own.

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